BusinessDay 06 Feb 2018

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Tuesday 06 February 2018 FT BUSINESS DAY FINANCIAL TIMES C002D5556 A3 World Business Newspaper Democrats warn of constitutional crisis over memo Alarm sounded over fear Donald Trump could seek to fire deputy attorney-general COURTNEY WEAVER Democrats have sounded the alarm of a potential constitutional crisis in Washington, warning that President Donald Trump may use the release of a topsecret memo as grounds to fire his deputy attorney-general and undermine a special counsel investigation into Russian interference in the 2016 election. On Sunday Democrats amplified calls to release a report written by minority members of the House intelligence committee, which they said would cast doubt over the accuracy of the memo, which alleges the Federal Bureau of Investigation misled a secret federal court when it received permission to wiretap Carter Page, a former campaign adviser to Mr Trump. In a tweet over the weekend, Mr Trump suggested the memo’s findings could be enough to end Robert Mueller’s investigation, sparking fears that the White House would use the memo, written by Republican lawmakers, as an excuse to end the probe. Its release is likely to put further pressure on Rod Rosenstein, the deputy attorney-general, who appointed Mr Mueller. “To say that that’s the end of the investigation, that this is all Trump needs to fire Rosenstein or to fire Bob Mueller, I’ll just tell you this could precipitate a constitutional crisis,” Dick Durbin, the Senate minority whip, said on CNN. “If the House Republicans believe they’ve set the stage for this president to end this investigation, they are basically saying that in America one man is above the law.” His Republican colleagues were “bound and determined to continue to find ways to absolve this president from any responsibility”, Mr Durbin alleged. “And frankly it’s doing Putin’s work.” Fears that a return of inflation will spell a quick end to a decade of easy money policies helped spark a global sell-off in equities on Monday with European and Asian markets picking up where Wall Street left off on Friday. Asian markets tumbled while Europe’s Stoxx 600 benchmark index fell 1 per cent with financial, technology and resource stocks Adam Schiff, the ranking Democrat on the House intelligence committee, said in an interview with ABC that Mr Trump’s decision to disregard FBI and Justice Department warnings and release the memo “could be evidence of the president’s intent to interfere with the investigation”. Leon Panetta, a former director of the Central Intelligence Agency, echoed Mr Durbin’s “constitutional crisis” warnings. “I believe it creates a constitutional crisis when the president distrusts the justice department and the FBI . . . They’re the primary law enforcement agencies under our constitution,” Mr Panetta told CBS. Washington was braced for further fallout from the memo on Monday, amid calls from some Republicans to sack Mr Rosenstein who, according to the document, signed “one or more” of the requests to put the Trump campaign operative under surveillance. Paul Gosar, a Republican from Arizona, is leading calls for criminal charges to be levied against Mr Rosenstein, as well as former FBI director James Comey, former FBI deputy director Andrew McCabe and former deputy attorney-general Sally Yates for the “illegal misconduct and abuse of [the Foreign Intelligence Surveillance Act, or Fisa]”. Mr Gosar accused the four officials of treason. Mr Trump has refused to say whether he still has confidence in Mr Rosenstein, who appointed Mr Mueller. On Saturday the president called the special counsel probe a “Russian Witch Hunt” and an “American disgrace”. “This memo totally vindicates ‘Trump’ in probe,” he tweeted. Last month, Mr Trump said he was “looking forward” to testifying under oath in Mr Mueller’s investigation, suggesting the interview could take place as soon as this week or the following week. Allies of Mr Trump have urged the president to reconsider. Global stocks fall further even as bonds find support Inflation fears trigger sharp falls in Europe and Asia as futures trading signals weaker Wall Street EMMA DUNKLEY, HUDSON LOCKETT AND MICHAEL HUNTER Brexit games risk EU’s financial efficiency Page A5 leading the selling as futures trading pointed to further falls at the start of US session. The S&P 500 suffered its worst trading day in two years on Friday after strong US jobs data underpinned forecasts of higher inflation as the global economy strengthens. Asian markets followed suit with Hong Kong’s Hang Seng index down by as much as 2.7 per cent, before paring its losses to close down 1.1 per cent Continues on page A4 Donald Trump hinted in a weekend tweet that the memo could be enough to end Robert Mueller’s probe © AP Wall Street opens sharply lower amid global sell off S&P 500 down more than 1% after drops in European and Asian trading EMMA DUNKLEY, HUDSON LOCKETT AND MICHAEL HUNTER Wall Street opened sharply lower on Monday as fears of a return to inflation continued to spread through global equity markets, with the benchmark S&P 500 down by more than 1 per cent in early trading. The Vix volatility index, widely known as Wall Street’s “fear gauge”, is at a level previously touched in the immediate aftermath of President Donald Trump’s election 15 months ago, at a reading of more than 18. The global sell off began on Monday in Asia, where nervousness that a return of inflation would spell a quick end to a decade of easy money policies convinced investors in European and Asian markets to pick up where Wall Street left off on Friday, where the S&P 500 suffered its worth trading day in two years. Europe’s Stoxx 600 benchmark index fell 1.5 per cent with financial, technology and resource stocks all hit Social media users of the world unite! Might our data be better viewed as labour rather than capital? JOHN THORNHILL If Plato were alive today, he might well regard much of the work we do as leisure, and much of the leisure we enjoy as work. Those extravagantly paid Davosian chief executives who jet around the world discussing the great issues of the day are in fact indulging in an endless swirl of symposia. But Plato would probably look askance at others who enjoy fishing, gardening and cooking, and view those activities as laborious occupations. So argued the Czech philosopher Tomas Sedlacek at a recent Financial Times conference, where he claimed to be working. His argument was intended (I think) mostly as an intellectual provocation to highlight how our definitions of work and leisure depend on cultural context rather than immutable social laws. But it would certainly help us unravel some of the puzzles of our digital Brexit chaos shatters Theresa May’s illusion of unity Page A6 as futures trading pointed to further falls at the start of US session. The sell-off was sparked by Friday’s strong US wage increase underpinned forecasts of higher inflation as the global economy strengthens. Hong Kong’s Hang Seng index was down by as much as 2.7 per cent, before paring its losses to close down 1.1 per cent overall. In Japan, the Topix index slid 2.2 per cent, closing just shy of its session low. London’s FTSE 100 fell 1.1 per cent, while the Frankfurt’s Xetra Dax 30 lost 1.1 per cent. According to the futures market, the S&P 500 will fall a further 0.7 per cent at the start of Wall Street trading. The sell-off persisted even as bond markets found a measure of support, helping the US 10-year yield tick down 1,6 basis points to 2.84 per cent. It had been up nearly 4 basis points to a high of 2.8831 per cent earlier on Monday. It started the year at 2.43 per cent. Jan Hatzius, chief economist at Goldman Sachs, wrote in a research note published at the weekend: “The expectation of tighter policy is now, economy if we were to flip some of our conceptual classifications on their head. Take social media, for example. Users of Facebook, Instagram, Twitter and YouTube may believe they are simply sharing their special moments, witty insights and hilarious escapades with friends and families. All this activity is enriching our lives, deepening our social connections, and providing fun and free leisure time. Looked at another way, though, all we are doing by pecking away at our mobile phones like so many digital battery hens is generating massive data sets for machine-learning programs to work out how to sell advertising against us. The genius of Facebook is that all its users are — unwittingly — working for the company for free, creating its most valuable product. That enables Facebook to pay out the equivalent of just 1 per cent of the company’s market value to its own employees, compared with 40 per cent at last, starting to weigh on broader financial conditions. “We are not particularly concerned about the move so far . . . Nevertheless, it might indicate that the equity and credit markets will need some time to digest the recent repricing before taking the next step.” Bond markets have come under rising pressure this year as economic sentiment has improved and central banks started to unwind some of their post-crisis monetary stimulus. A surge in US wages revealed in data on Friday and robust economic growth raise the possibility that the Federal Reserve could look to tighten monetary policy this year more aggressively than anticipated. Treasuries have also been hit by expectations that the US deficit will rise because of the recent tax cuts, leading to more government borrowing. In turn, this has hit stock markets as rising bond yields can undercut equities by lifting borrowing costs for companies and making returns from stocks look relatively less attractive. at Walmart. We have all been seduced by the “siren servers”, as Jaron Lanier, the author and Microsoft researcher, has called them. Naturally, most of the Silicon Valley crowd see little wrong with our implicit digital contract. Hal Varian, Google’s chief economist, argues that consumers receive immensely popular, convenient services for free. Advertisers benefit from cheap, effective targeting of audiences. If users do not like Google’s offer then they can easily switch to other services. Rivals can generate, and buy in, their own data unencumbered. Competition is but a click away. That argument may hang together if you regard user data as capital created and owned by the technology companies. But a team of technologists and academics, including Mr Lanier, has published a paper challenging that conception. They argue that data are better viewed as the product of labour, rather than the byproduct of leisure.
Tuesday 06 February 2018 A4 BUSINESS DAY C002D5556 FT NATIONAL NEWS Don’t forget there’s good news behind higher bond yields Despite a risk of a disorderly sell-off, yields are rising because of faster growth and inflation MOHAMED EL-ERIAN For something that supposedly was predicted for so long, the move up in US interest rates has attracted lots of attention. It’s been blamed for a violent sell-off in stocks and fuelled warnings not just of an end to the bull market in bonds but, perhaps, also equities. That, in turn, can engender concerns about the housing market, corporate funding, financial stability and economic growth. Yet the causes behind the rise in bond yields suggests this is more likely to be part of a larger — and healthier — economic and financial normalisation. It is one, as I argued last month, that could help America and other advanced countries confine to the rear-view mirror the years of being stuck in low and insufficiently inclusive growth. There are four reasons why. First, the move up in yields is not just a US issue: it is part of a wider phenomenon that has seen German government bonds largely keep pace with their American counterparts. Five-year German maturities escaped the negative rate world they have been mired in for several years. It has also helped moderate a flattening of the yield curve that had led some to incorrectly argue markets were signalling an upcoming derailment of economic growth. Second, and more importantly, good (not bad) forces are driving this phenomenon. Rather than a monetary policy mistake or deteriorating perception of sovereign credit risk, higher yields reflect increasing comfort with the growth and inflation outlook. The US is part of a synchronised pick-up in global economic activity, turbocharged by the implementation of pro-growth fiscal measures and deregulation, as well as brighter prospects for an infrastructure boost. Meanwhile, as confirmed by last week’s meeting of Federal Reserve policymakers, the US central bank continues the “beautiful normalisation” of unconventional measures, with markets converging much faster this year to official policy guidance on policy rates and inflation. Global stocks fall further... Continued from page A3 overall. In Japan, the Topix index slid 2.2 per cent, closing just shy of its session low. London’s FTSE 100 fell 1.4 per cent, while the Frankfurt’s Xetra Dax 30 lost 1 per cent. According to the futures market, the S&P 500 will fall a further 0.7 per cent at the start of Wall Street trading. The sell-off persisted even as bond markets found a measure of support, helping the US 10-year yield drift back to 2.85 per cent, leaving it unchanged from Friday’s close. It had been up nearly 4 basis points to a high of 2.8831 per cent earlier on Monday. It started the year at 2.43 per cent. Jan Hatzius, chief economist at Goldman Sachs, wrote in a research note published at the weekend: “The expectation of tighter policy is now, at last, starting to weigh on broader financial conditions. “We are not particularly concerned about the move so far . . . Nevertheless, it might indicate that the equity and credit markets will need some time to digest the recent repricing before taking the next step.” Bond markets have come under rising pressure this year as economic sentiment has improved and central banks started to unwind some of their post-crisis monetary stimulus. A surge in US wages revealed in data on Friday and robust economic growth raise the possibility that the Federal Reserve could look to tighten monetary policy this year more aggressively than anticipated. Treasuries have also been hit by expectations that the US deficit will rise because of the recent tax cuts, leading to more government borrowing. In turn, this has hit stock markets as rising bond yields can undercut equities by lifting borrowing costs for companies and making returns from stocks look relatively less attractive. Mohammed Apabhai, Citigroup’s head of Asia-Pacific trading strategy, noted there is also “uncertainty over what the new Fed governor is going to do”. However, JPMorgan Asset Management chief global strategist David Kelly disagreed with the “popular narrative” that equities have been “tanking” because of fears interest rates would rise due to higher inflation. “The somewhat untidy but nevertheless more plausible explanation is that both the bond market and stock market were overdue for a correction after a remarkably placid two years,” Mr Kelly said. Lee Jae-yong was freed nearly a year after he was jailed on corruption charges, a big relief for Samsung, South Korea’s largest conglomerate © AP Samsung’s Lee Jae-yong freed from jail by appeals court Ruling enables de facto leader to return to work amid trend of white-collar leniency SONG JUNG-A Lee Jae-yong, Samsung’s de facto leader, has been set free with a suspended prison sentence nearly a year after he was incarcerated on corruption charges, a ruling that comes as a big relief for South Korea’s largest conglomerate. Seoul’s appeals court on Monday halved the billionaire heir’s sentence to two and a half years and suspended it for four years, allowing Mr Lee to walk free immediately. The ruling enables him to return to management and continues the judiciary’s tendency to be lenient towards white-collar crimes committed by tycoons of family-run conglomerates. Mr Lee, vice-chairman at Samsung Electronics and the group’s heir apparent, is expected to speed up the process to succeed his ailing father, chairman Lee Kun-hee, who has been incapacitated since a heart attack in 2014. “Now that he is free, Mr Lee will try hard to sort out various issues related to his succession and inheritance,” said Chung Sun-seop, head of corporate analysis group Chaebul.com. “He will also accelerate Samsung’s efforts to overhaul its governance.” Shares in Samsung Electronics erased earlier losses to close up 0.5 per cent, while the broader market fell 1.3 per cent. The appeals court said Samsung had not sought any favours from former South Korean president Park Geun-hye. Prosecutors had claimed Mr Lee bribed Ms Park to win government backing for efforts to strengthen his control over the sprawling empire. The court also dismissed prosecutors’ claim that Mr Lee hid assets abroad. “This is a case where Ms Park intimidated Samsung’s management and her friend pursued personal interests,” the court said in the ruling. “The defendant passively offered bribes because he could not easily turn down their request.” Because he was not cleared of all the bribery charges, his lawyer said Mr Lee would appeal the ruling to the supreme court. It is likely to be more than six months before there is a final decision. Samsung welcomed the ruling, which comes as the company is striving to repair a corporate image bruised by Mr Lee’s involvement in the corruption scandal that led to the impeachment of Ms Park, and exposed corrupt ties between government and big business. Mr Lee, who has always denied any wrongdoing, apologised. “I am sorry again that I have not been able to show my good aspects,” he told reporters after the verdict. He said the past year in jail had given him time to reflect and that now he “will look after things more carefully”. Critics said the verdict ran counter to Seoul’s efforts to clean up big business in Korea. “It is regrettable to see the judiciary going back to the past, with no real changes made in the problematic business practices of corporate Korea,” said Mr Chung at Chaebul.com. The opposition People’s party said: “It is questionable whether the public can accept the ruling, which basically says that Samsung has provided billions of won to Ms Park for nothing in return. You are guilty if you have no money. You are not guilty if you have money.” Despite Mr Lee’s absence, the company has continued to enjoy record earnings, surpassing Intel as the world’s largest chipmaker. But signs of a faltering chip cycle have weighed on its shares recently amid slowing sales of smartphones and display panels. Samsung said it would continue to reform its corporate culture. It has announced a string of measures over the past year to appease investors, including sharp increases in shareholder returns. It also plans to appoint independent outside directors at the annual shareholders’ meeting in March, to better reflect the interests of minority shareholders. South Korea has a long history of presidents pardoning convicted executives of companies deemed too big to fail. Most recently, Ms Park in 2015 freed Chey Tae-won, chairman of SK Group, who was convicted of embezzlement. However, experts do not expect Mr Lee to be pardoned by President Moon Jae-in, whose administration has vowed to abolish such practices. Broadcom raises Qualcomm bid to $146bn New offer for rival chipmaker includes significant break-up fee JAMES FONTANELLA-KHAN Broadcom has raised its takeover bid for Qualcomm to about $146bn including debt, as the Singapore-based chipmaker tries to secure support ahead of a de facto referendum on the largest tech deal in history early next month. Under Broadcom’s “best and final” offer, Qualcomm shareholders will receive $82 a share — $60 in cash and the remainder in stock — compared to the $70 per share deal they were offered in November. The bid represents a 54 per cent premium to Qualcomm’s unaffected 30-day volume-weighted average stock price. The new proposal also includes an undisclosed “ticking fee” if the deal is not closed within a year of announcement. Broadcom added that it would pay a significant termination fee, without specifying the amount. Both moves are designed to reassure investors that the combination will win regulatory approval. Broadcom’s new offer will set off what is expected to be one of the most bitterly fought hostile takeover fights in recent mergers and acquisition history. Qualcomm shareholders will meet on March 6 to vote on a Broadcombacked plan to unseat and replace the entire board of the US chipmaker, which would pave the way to a deal if approved. The combination, which so far has been vehemently opposed by Qualcomm, would create a semiconductor juggernaut positioned as a market leader in everything from the production of chips for mobile phones to nextgeneration electric vehicles. Qualcomm is unlikely to be impressed by the new offer, according to people close to the San Diego-based company. But the same people admitted that the maker of chips for Apple’s iPhone could come under pressure from investors to engage with Broadcom if the new bid is at the $80s per share level. People close to Hock Tan, Broadcom’s chief executive, said the 65-yearold Malaysian was determined to get a deal done in a friendly manner. They said Mr Tan would be prepared to withdraw a proxy fight that seeks to remove Qualcomm’s board of directors and replace them with a new slate nominated by Broadcom. “We continue to hope you choose to engage with us for the benefit of your stockholders,” Mr Tan said on Monday in a letter to shareholders. “However, we will withdraw this proposal and cease our pursuit of Qualcomm immediately following your upcoming annual meeting unless we have entered into a definitive agreement or the Broadcom-nominated slate is elected.”
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BusinessDay 06 Feb 2018

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